A full competition inquiry into the market for current accounts and small business banking has been launched by the Competition and Markets Authority (CMA). The probe, first proposed in July, will investigate the difficulties customers face in switching banks, and the lack of smaller competitors to the “big four” High Street names. It will also look into competition in small business banking. The BBA said the industry would “co-operate fully with any investigation”. “Banks are pro-competition – they compete for business every day,” said BBA chief executive Anthony Browne. However, last minute lobbying by banks meant plans to investigate insurance, foreign exchange dealing, hedging products and credit card processing for small firms have all been dropped from the new inquiry.
Jokes about why there is only one Competition and Markets Authority aside, this is a serious investigation. Interestingly and unsurprisingly it is apparently the banks that were most against the investigation during the consultation, arguing that it would be expensive and hold back lending to the economy. Surely the banks have got that the wrong way round – if somehow the banking market were opened up to more competitors then the existing banks would certainly lend no less than they currently do, as it’s only by lending that the banks make money, and with more banks lending more consumers and small businesses would be able to obtain finance.
So-called challenger banks have entered the market and can only be a welcome presence. Some have taken on innovative approaches and we can only see their market share increasing.
One concern regarding the CMA’s investigation was whether the prevalence of free current accounts poses a barrier to entry. Whilst this may be true on an technical level the logical conclusion would be to ban free banking so as to open up competition. That would be bizarre as how can charging for bank accounts that the majority of consumers have enjoyed for decades be in the consumers’ best interests? Surely the whole point of CMA investigations is to have consumers’ best interests at heart. It reminds us of when Sky was forced to relinquish its rights to all premier league football broadcasting rights – Sky showed less football for the same price and rival broadcasters charged separately for their matches, meaning the consumer had to pay more to watch the same amount of football. Although this situation is entirely different, we hope the CMA will have the consumers’ best interests at heart.